TASE: Banks charge far more than investment houses

For small portfolios, the banks' average trading commissions are 2.9 times higher, while their management fees are a whopping 33.3 times higher.

For the first time, the Tel Aviv Stock Exchange (TASE) has revealed the huge variations in the average commissions charged by its members, and the picture is clear: the banks benefit from their standing with the retail customers that trade through them and charge much higher prices than the investment houses.

A comparative calculator of portfolio management fees (that can be regarded as also including custodian fees) and of purchase and sale commissions for customers with portfolios of NIS 100,000-200,000 shows that the banks charge management fees that are on average 33.3 times higher than those charged by the investment houses, while the banks' purchase and sale commissions are on average 2.9 times higher. The average portfolio management fee charged by the banks is 0.38%, while the investment houses charge just 0.01% on average. The average trading commission at the banks is 0.24%, versus a 0.08% average commission at the investment houses. The calculator is available in Hebrew only.

The figures were revealed yesterday as the TASE embarked on an initiative to make available tools and information that will help financial consumers in Israel obtain better terms for trading through the various TASE members. The TASE, headed by Ittai Ben-Zeev, has started to publish on its website information on the trading and clearing commissions that its members charge their customers. The move was initiated by the exchange's non-bank members belonging to the investment houses, which are much cheaper, and yet attract a far smaller proportion of the public than the banks.

The huge gaps are not just in the averages. The data show that the bank charging the lowest commissions is still substantially dearer than the highest charging non-bank TASE member. Moreover, the investment houses are competitive with one another, the four non-bank TASE members charging similar commissions, whereas the variation among the banks is much greater. It might have been thought that such large price differentials would make investors rush to the investment houses, but they don't. Whether from laziness or lack of information, people mainly act through the banks, while the number of non-bank stock exchange members is dwindling. The picture that emerges looks like a market failure, if only because customers are prepared to tolerate such wide gaps.

Elad Benbaji, CEO of Excellence Nessuah Brokerage, the stock exchange member belonging to Excellence Nessuah Investment House, said, "We are very glad that these figures are being published so that the public will realize that the commissions charged by the non-bank stock exchange members are substantially lower than the commissions charged by the banks. It should be borne in mind that the profitability of an investment portfolio is directly impacted by the size of purchase and sale commissions. I hope that publication of the attractive commissions offered by the investment houses will make Israelis check the commissions they are paying and choose the place that gives them the lowest commissions and the best service."

The figures published by the TASE relate to a well-known situation, but they provide real numbers for the first time. The TASE website indicates that the same situation applies to larger portfolios. Our own check found that the trend in portfolio management fees is the same, and the investment houses are cheaper for any size of portfolio. For sale and purchase commissions, First International Bank of Israel (TASE: FTIN) becomes cheaper, but the rest of the banks are dearer than the investment houses. Our check was for Israeli securities only.

Past experience of similar initiatives teaches that the general public does not flock to online tools created for it, and few have the financial awareness that gives such tools value. Perhaps the figures now revealed will rouse the public to act in a more informed way and lead to a change in the situation. The TASE is the regulator of its members, which for the time being are its shareholders, until the change in the TASE's ownership structure is completed and control passes to other hands.

Most of the shares in the TASE are currently held by the banks, which will part from their shareholdings in the wake of new legislation on the matter. The TASE management is promoting the sale of control to foreign investment funds and the offering of a substantial proportion of its shares to the public. The TASE states that the disclosure of fees and commissions was carried out under the legislation on change in its ownership, which obliges its members to report all the commissions they charge their customers and obliges the TASE to publish the information on its website.